Draghi’s Reminders
Speaking before the European Parliament on Monday, ECB President Mario Draghi warned that the ECB was prepared to do more should growth continue to falter. This was a reminder to markets that post-German elections (and some rather chunky LTRO repayments), policy guidance would not change. Then again, markets didn’t really need reminding and the intended target was the political establishment, especially comments on OMT having no fiscal ‘intention at all’ and the long-term intention for the ECB to not be part of the Troika. No matter who is in charge in any country, structural reforms are necessary to boost demand in a sustainable manner. Until then, ECB will be sub-optimal: too loose for the core and too tight for the periphery. The policy status quo also limits euro downside, which doesn’t seem welcome by anyone as leaders continue to preach exports.
Read the full report: UBS